Sunday, August 21, 2016

Fair Share America #1: Taxes

Here's the meme that set me off:

Math checks out? What math? There is no math here. There is a mean-spirited gripe from
  1. someone ("we") who has a problem with democracy (never mind the fact that the 47% only comprise a little over 1/3 of the people who bother to vote);
  2. someone who seems not to know that, in our democratic republic, the people who do the actual voting for such legislation as federal tax rates are elected representatives in Congress, where the majority of members are millionaires;
  3. someone who conveniently leaves out the fact that the 47% who are employed pay a federal payroll tax on all of their wages (unlike very wealthy people);
  4. someone who conveniently forgets that retired people living on fixed incomes (Social Security, savings, and pensions) are among the 47%; and
  5. someone who can't be bothered actually to get the facts or do the math about progressive taxation in the US.
Oliver Wendell Holmes, Jr., famously said that taxation is the cost of civilization. Nobody likes paying taxes, but there it is. Of the two great ineluctables, I'll take taxes any day over death. If we have to pay taxes, it seems only ethical that the tax burden should be shared equitably.

In considering the nature of that burden, we can't determine fair levels of taxation without looking at the total picture of income. The total picture of income starts with gross income and then takes out all taxes: state, local, federal.

Here is a useful breakdown from the Center for Tax Justice. It's a little old (2011) but still useful for the sake of this discussion. The "after-tax" and "% paid in tax" columns are mine and show the results of simple calculations.

                  AVG. INCOME ($)  TAXES ($)    AFTER-TAX $     % PD. IN TAX
Lowest 20%       13,000                 2,262               10,738                       17.4
21-40                  26,100                 5,533               20,567                       21.2
41-60                  42,000               10,584               31,416                       25.2
61-80                  68,700               19,442               49,258                       28.3
81-90                105,000              30,975                74,025                       29.5
91-95                147,000              44,541              102,459                       30.3
96-99                254,000              77,216              176,784                       30.4   
top 1%           1,371,000            397,590              973,410                       29

Notice the percentage column. They are perhaps a little on the low side in 2016 numbers: reported a national average of 31.5% in July, 2015. However, for the sake of this discussion, it is safe to say what TaxFoundation said: that the average American pays "nearly one-third of their income in taxes."

But wait! What about poor people! They pay way less, as a percentage, than the upper income brackets! Is that fair?

Realistically, in the case of taxing lower incomes, it's more a "blood from a turnip" situation.

Take a look at the after-tax column. This is the disposable income available to pay to live. The average national cost of living is $3,258 per month or almost 40 thou a year. The bottom 60% don't make that much. There's simply no sense in asking them to pay more in taxes. The money's not there.

Where's the money? It's obvious where the money is. The money is at the top. And if you look at the disposable income for the top brackets, it's more than generous. Subtract the average cost of living from the disposable amount in the top 10%. Then go ahead and subtract something for college tuition. Then whatever you're left with, try factoring back in compound interest for some investments. The money gap gets wider and wider, not even taking into account how favorable the economy has been in the last 30 years to those in the top 10%.

So the question about fairness becomes one about capability: Who can best afford to give Uncle Sam the money he needs? To anyone claiming "Socialism!" or "Income redistribution!" there is a simple, conservative answer going all the way back to the Founding Fathers: civic obligation.

Unless they want to live in a broken-down nation of paupers, those with the lion's share of the money have a duty to pay the lion's share of the costs of government. As we have seen, they are in fact doing so, and it is right that they do so. So why complain about the 47% all the way to the bank, to their child's Ivy League university graduation, or to the country club?

Wealthy people feel taken advantage of. "Look at this, all my hard-earned money being used to pay for too much government, and all those poor people not paying a damn thing and living off my money in the form of welfare."

(In fact, redistributing income through something like a basic income plan would be the quickest way to reduce the size of government and eliminate welfare. But there's not much of that kind of thinking going on. A pity: Democracy would allow for it.)

The gripe is worth listening too, untrue and mean-spirited though it may be, because it points to something that really should be an area of concern: the distribution not so much of who pays taxes, but of who performs works of civic obligation. Which will be the topic of Fair Share America #2.

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